Many people shy away from starting an online store because of the startup costs and fulfillment hassles.
But imagine if a supplier offered to pay your upfront inventory costs on thousands of items (for just a bit more than the wholesale price) and manage your fulfillment operations. This is dropshipping.
With a dropshipping store, you can easily start an online business and run it from just about anywhere in the world. Sound too good to be true? It's not, if you know how to get started.
In this chapter, I'll remind you of the benefits of dropshipping, share two vital operating principles for starting a dropshipping business, and give you in-depth tips for beginners.
The benefits of a dropshipping store
Whether you have a Shopify store or are using a different ecommerce platform, there are a number of reasons you should consider a dropshipping business model. Here are a few of the most compelling:
You don't need capital to get started. The dropshipping process makes it amazingly easy to get started selling online. You don't need to invest heavily in inventory, yet you can still get access to thousands of items for your customers for a little over the wholesale price and sell them for market value.
Convenience and efficiency. Successfully launching and growing an ecommerce business takes a lot of work, especially if you have limited resources. Not having to worry about fulfillment frees up your time to concentrate on your marketing plan, customer service, and operations.
Mobility. With all the physical fulfillment issues handled, dropshipping stores are free to operate their business anywhere they can get access to an internet connection.
It's a tested model. Plenty of online stores, including major retailers like Macy's, use dropshipping websites to offer a wider selection of products to their customers without having to deal with increased inventory hassles.
Basic Dropshipping Principles
If you've never run a dropshipping business, the information in this chapter could save you weeks of wasted time and frustration. Many of these dropshipping tips are drawn from two basic principles about making a dropshipping business work efficiently:
Accept that things can get messy. The convenience of dropshipping comes at a price, and having an invisible third party involved in each sale often complicates things. From botched orders to out-of-stock items, fulfillment problems will be something you'll have to deal with. If you accept this ahead of time, you're less likely to throw in the towel due to frustration.
Adopt a KISS mentality. Having a KISS (Keep It Simple, Stupid!) mentality will serve you well with the dropshipping model. Given the inherent complexity of dropshipping, including multiple suppliers and shipments from various locations, you may think you need to perfectly track your costs and inventory at all times. But if you try to do this, you'll likely go crazy, spend thousands on custom development and never launch a store. Focusing on the easiest-to-implement solutions, even if they're not “perfect,” is usually the better option, especially when you're starting out.
Ask any dropshipping store owner and they will agree. With these two concepts in mind, let's discuss dropshipping beginners tips that will help you structure your business operationally and make things run as smoothly as possible.
10 dropshipping tips for beginners
- Own your supplier's mistakes
- Manage your inventory levels
- Fulfill orders intelligently
- Implement security best practices
- Handle chargebacks quickly
- Write an effective return policy
- Adopt simple shipping rules
- Provide great customer support
- Consider phone support
- Focus on marketing
1. Own your supplier's mistakes
Even great suppliers make mistakes, and with a dropshipping business model, you're guaranteed to have fulfillment errors from time to time. So what do you do when your supplier sends the wrong item or nothing at all? Here are three possible options:
Take the blame. Under no circumstances should you blame your dropshipping supplier for the mistake. It will only cause confusion and make you look like an amateur. The customer has no idea the dropshipper even exists. Instead, you need to own the problem, apologize, and let the customer know what you're doing to fix it.
Make it up to the customer. Depending on the level of the mistake, you may want to proactively offer the customer something for the error. This could mean refunding the shipping fee (a personal favorite of ours) or an upgrade if the customer needs a new item shipped out.
Have the supplier pay to fix it. You may have to assume responsibility for the error, but that doesn't mean you need to cut into your profit margin. Any reputable supplier will pay to fix its own errors, including paying for shipping costs to return items. However, it probably won't pay for any freebies or upgrades you gave the customer. You need to consider those public relations and marketing expenses.
Again, even the best dropshipping suppliers will occasionally make mistakes, but be extremely wary of a supplier that habitually botches your orders. Unless you can get the supplier to change (unlikely), your business's reputation will suffer. If this is the case, you should probably start looking for another supplier.
2. Manage your inventory levels
Most experienced dropshippers would agree that managing inventory across multiple suppliers is the biggest challenge you'll face running a successful dropship business. Do a poor job of this and you'll constantly be informing customers that their order is out of stock—not a great way to attract repeat business and loyal brand fans.
Learn more: Everything you need to know about ePacket and dropshipping
Properly managing inventory across your suppliers and distributors—and limiting the number of out-of-stock items you sell—is a complex process. Shopify apps like DuoPlane and Syncee or a web-based service like Ordoro can help you sync inventory on your Shopify store. This is a great option when suppliers offer real-time data feeds, but suppliers don't always have them.
Below are some dropshipping tips for inventory management that should help drastically reduce the number of out-of-stock items you sell:
Use multiple suppliers
Having access to multiple suppliers with overlapping inventory is one of the best dropshipping tips for improving your order fulfillment ratio. If Supplier A doesn't have an item in stock, there's a good chance Supplier B has it.
Additionally, it's risky to rely on one supplier as the only place to source your product. If they decide not to work with you, raise their prices, or go out of business, the future of your online store could be in jeopardy.
While you won’t find two suppliers that carry all the same products, if they operate in the same dropshipping niche or industry, both will likely stock the bestselling items—and these are your biggest concern.
Pick your products wisely
Once you validate your product, try to sell primarily items that you know are carried by all of your suppliers. This way, you’ll always have two potential fulfillment options for any product you carry.
Learn more: How to Find the Best Products to Dropship
Use generics to your advantage
Even if they don't have the exact same item, two suppliers might carry near-identical products that are interchangeable. This is particularly true for smaller accessories and product add-ons. If you can confirm that two products are nearly identical, write a generic product description that allows you to fulfill the order from either supplier.
Also, be sure to list both suppliers' model numbers in the model field. That way you can forward an order invoice to either supplier without having to make changes.
Check on item availability
Just because a dropshipper lists an item on its website doesn't mean it carries that item consistently. It's a good idea to chat with your sales representative about the availability of products you're considering selling.
Are these items in stock 90% of the time or more? Or does the dropshipper keep only a few on hand and often have trouble getting the product reordered from the manufacturer? You'll want to avoid stocking the latter type of products.
Dealing with out-of-stock orders
Despite your best planning, you'll inevitably deal with customer orders you can't fill. Instead of telling the customer the item is out of stock, offer a complimentary upgrade to a similar—but better—product. Your customer will likely be thrilled, and you'll be able to retain the customer relationship.
You might not make any money on the order, and that's OK: after all, you wouldn't have made any money had your customer canceled the order, either.
3. Fulfill orders intelligently
Using multiple suppliers has a number of benefits that we've discussed: it increases the likelihood that items will be in stock, offers geographical diversity for faster delivery times, and prevents you from being reliant on any one source for your products. But with multiple options for filling an order, how do you know which is the right supplier to choose? There are a few different methods to consider:
Route orders to a preferred supplier
If you have one supplier that stocks most of your items and is easy to work with (superior service, great selection, etc.), you can simply route all orders to that supplier by default. This is particularly easy to implement, as you can simply add your supplier's email address as a recipient for all new order confirmations, automating the entire process.
Route orders based on location
If you use multiple suppliers that each stock the majority of your products, you can simply route the order to the supplier closest to your customer. This not only expedites delivery to your customer, but also saves on shipping fees.
Route orders based on availability
If you stock a large catalog of products spread out over numerous suppliers, you'll likely need to route each order based on which dropshipper has the item in stock. This option requires more work if you're doing it manually but can be automated with a service like eCommHub if your suppliers provide data feeds.
Route orders based on price
This sounds great in theory, but unless one supplier has significantly better pricing it can be difficult to automatically determine which supplier will be cheapest. Any automated solution will need to consider potential drop fees, real-time shipping rates, and real-time supplier pricing. So while not impossible, it can be difficult to implement an accurate automated system to accomplish this.
Note: Even if you don't route all your orders on price, you should have your suppliers bid against each other to achieve the best pricing possible as your business grows. Just don't try doing this too early—if you're asking for pricing discounts as a newbie, you'll likely only annoy your suppliers.
We've tried all four methods and found there's no “best” way to do it. It really depends on your store, your suppliers, and your personal preferences.
4. Implement security best practices
In today’s world, there’s no excuse for running an online business with weak security or poor fraud prevention practices. Here are some dropshipping tips for keeping your customers’ personal information safe while the're shopping online.
Storing credit card numbers
Storing your customers' credit card information allows for convenient reordering and may increase sales. But if you're hosting your own site, this typically isn't worth the security issues and liability.
To store credit card data you'll need to abide by complex PCI (payment card industry) compliance rules and security audits. And if your server is hacked or breached, you might be liable for the stolen card information.
The best solution is not to store your customers' credit card data. Consider offering one or multiple payment options from third parties like Shop or PayPal, which speeds up checkout,reduces cart abandonment, and frees you to focus your efforts on marketing and customer service instead of security audits.
If you have a Shopify store, you won't need to worry about any of this. But if you're using a self-hosted cart or another ecommerce platform, make sure to disable the “store card information” feature in your configuration panel.
Dealing with fraudulent orders
The possibility of fraudulent orders can be scary when you're starting out, but with some common sense and a bit of caution you can prevent the vast majority of losses due to fraud.
The most common and widely used fraud prevention measure is the AVS, or address verification system. When AVS is enabled, customers must enter the address on file with their credit card for the transaction to be approved. This helps prevent thieves with just the raw credit card number from successfully making purchases online.
The vast majority of fraudulent ecommerce orders occur when the billing and shipping addresses are different. In these cases, a thief enters the card owner's address as the billing address and enters a separate shipping address for the goods. Unfortunately, if you don't allow customers to ship to addresses other than the billing address, you'll lose out on a lot of legitimate orders.
The good news is that fraudsters tend to follow patterns that make it easier to spot illegitimate orders before they ship. Individually, these signs won't help you flag a fraudulent order, but if you see two or three of them you should investigate:
Different billing and shipping addresses. Again, more than 95% of all fraudulent orders will have different billing and shipping addresses.
Different names. Different names on the billing and shipping addresses could be a red flag for fraudulent orders. That, or a gift purchase.
Unusual email addresses. Most people have email addresses incorporating some part of their name, allowing you to match part of an email address to a customer's name. But if you see an address like email@example.com, there's a good chance it's a made-up address and is one sign of fraud.
Expedited shipping. Since they're charging everything to someone else's card, fraudsters will often pick the fastest—and most expensive—delivery method. It also reduces the amount of time you have to catch them before the item is delivered.
If you spot an order you suspect is fraudulent, simply pick up the phone. Fraudsters almost never put their real number on an order. If the order is legitimate, you'll likely have a 30-second discussion with someone that clears everything up.
If not, you'll get a dead number or someone who has no idea that she ordered a 25-foot boat scheduled for overnight delivery. At that point, you can cancel the order and issue a refund to avoid any chargebacks or problems.
5. Handle chargebacks quickly
When a customer calls his or her bank or credit card company to contest a charge made by you, you'll receive a “chargeback.” Your payment processor will temporarily deduct the amount of the disputed charge from your account and ask you to prove that your dropship business delivered the goods or services to the customer.
If you can't provide proof, you'll lose the amount in question and be slapped with a $25 chargeback processing fee. If you rack up too many chargebacks, you could even lose your merchant account.
The largest cause of chargebacks is usually fraud, but customers will also dispute a charge because they didn't recognize your business, forgot about the transaction, or simply didn't like the product they received.
When you receive a chargeback, you often have just a few days to respond, so you need to act quickly! To have a shot at getting your money back, you'll need to provide documentation of the original order, tracking information showing delivery, and likely a wholesale packing slip showing which items you purchased and shipped.
Unfortunately, if the chargeback is related to an order with different billing and shipping addresses, you're almost certainly not going to win. Most processors will only compensate you for fraudulent orders shipped to the billing address on the card.
6. Write an effective return policy
Before writing a return policy for your dropshipping store, you'll want to make sure you understand how all your suppliers deal with returns. If they have a lax 45-day return window, you can afford to be generous with your terms. A strict return policy from just one supplier can cause you to re-evaluate the terms you can afford to have in place.
When a customer needs to return an item, the process will look like this:
A customer contacts you to request a return.
You request an RMA (return merchandise authorization) number from your supplier.
The customer mails the merchandise back to your supplier, noting the RMA # on the address.
The supplier refunds your account for the wholesale price of the merchandise.
You refund the customer for the full retail price of the merchandise.
It's not always this straightforward, however. The following variables can complicate returns:
Some suppliers will charge a restocking fee, which is essentially a surcharge for having to return an item. Even if your supplier charges these fees, we strongly recommend not passing them along to your customer, as they’ll make your online store seem outdated and unfriendly.
Although you may have to eat a fee here and there, you'll recoup that expense in more customers who decide to do business with you.
The only thing worse than receiving a defective item is having to pay additional postage to return it. Most dropshipping suppliers won't cover return postage for defective items. In their view, they didn't manufacture the item so they aren't liable for defects.
You, however, should always compensate your customers for return shipping fees on defective items if you're interested in building a reputable business. This is simply part of the cost of running a successful dropshipping business.
If the defective item is relatively inexpensive, it often makes sense to just ship the customer a new product without requiring them to return the old one. This has a number of advantages compared to making them return the old item, including:
It can be cost effective. It doesn't make sense to pay $10 to return an item that only costs you $12 from your wholesaler. You'll get a $2 net credit, but it's not worth it for the hassle to your customer, supplier, and staff.
The customer is blown away. By offering the convenience of a replacement without the hassle of a return, you'll increase customer satisfaction and even drive repeat sales. The customer will also get the new product much faster than they would if the old one had to be returned to the warehouse prior to shipping a replacement.
Your supplier may pay for shipping. Suppliers won't pay for return shipping on a defective product, but most will pay to have a replacement sent to the customer. Because they'll be paying for return shipping anyway, most suppliers can be talked into covering the shipping on a replacement product that you simply purchase separately.
If a customer wants to return a non-defective product for a refund, most companies will expect the buyer to pay for the return freight. If you're willing to offer free returns on everything, you'll definitely stand out (and companies like Zappos have made this part of their unique business model).
That said, universal free returns can get expensive, and most customers will understand that you shouldn't have to cough up return shipping fees simply because they ordered a product they ultimately didn't want.
Note: If you're dropshipping on Amazon or eBay, your returns policy is subject to that marketplace. What you state in your return policy may not apply if using these sites.
7. Adopt simple shipping rules
Calculating shipping rates can be a big mess for dropshipping business owners. With so many different products shipping from multiple locations, it's difficult to accurately calculate shipping rates for orders.
There are three types of shipping rates you can use:
Real-time rates. With this method, your online shopping cart will use the collective weight of all items purchased and the shipping destination to get an actual real-time quote. This is very accurate but can be difficult to compute for shipments from multiple warehouses.
Per-type rates. Using a per-type method, you'll set flat shipping rates based on the types of products ordered. So all small widgets would ship for a flat $5 rate, while all large widgets would be $10 to ship.
Flat-rate shipping. As the name implies, you'd charge one flat rate for all shipments, regardless of type. You could even offer free shipping on all orders. This method is the easiest to implement but is the least accurate in reflecting actual shipping costs.
When it comes to fulfilling your orders, our dropshipping tip is to refer to the core principle of simplicity over perfection, especially if you're just starting dropshipping.
Some dropshipping store owners will spend days—or weeks—struggling with shipping rules for an ecommerce store that has yet to generate a sale. Instead, they should focus optimization efforts on marketing and customer service and quickly implement a simple shipping policy that sets a flat rate based on your average shipping fee. You'll probably lose money on some orders, but make it back on others.
Even if you could implement a system that passed along extra shipping fees based on supplier location, would you really want to? Most customers balk at excessive shipping fees, especially when they assume their order is originating from one location.
Instead, try to limit multiple shipments by using suppliers with overlapping inventory and by being selective about the items you sell. This is a much more practical and simple long-term solution.
International shipping has become easier, but it's still not as straightforward as domestic shipping. When you ship internationally, you'll need to consider:
Different weight and length limitations for different countries
Additional charges from suppliers for processing international orders
The added expense of resolving problematic orders due to higher shipping fees
Excessive costs for shipping large and/or heavy items
Is the hassle worth it? It depends on the market you're in and the margins you earn. If you sell small items with higher profit margins, the increased market reach may make it worthwhile to deal with the hassle and expense of offering international shipments. For others, especially small business owners that sell larger or heavier items, the added benefit won't be worth the expense and inconvenience.
Choosing a shipping carrier
Selecting the right carrier is important, as it can save you a significant amount of money. In the US, the largest decision you'll need to make is between UPS/FedEx and the US Postal Service.
UPS/FedEx. These privately run giants are great for shipping large, heavy packages domestically. Their rates for big shipments will be significantly lower than those charged by the USPS.
US Postal Service. If you're shipping small, lightweight items, you can't beat the rates offered by the USPS. After dropshipping fees, the cheapest UPS shipping fee you're likely to see is around $10, while you can often ship items for $5 or less through the post office. The post office tends to be a better choice for sending international shipments, especially smaller ones.
When setting up your shipping options, consider categorizing them by shipping time (“Within 5 Days” or “Within 3 Days”), as this gives you the flexibility to pick the carrier that's the most economical for each order and delivery time.
8. Provide great customer support
Take it from us: managing all your customer emails, requests, and returns in an Excel spreadsheet is not ideal as a dropshipping store owner. Similarly, as your business and team grow, managing support with a single email inbox also quickly breaks down and leads to problems and service lapses.
Implementing a help desk and writing FAQ articles is one of the best dropshipping tips to ensure quality service for your customers. Helpdesk software comes in a number of different forms, but all provide a centralized location to host an FAQ page and manage your customer support correspondence and issues. Most desks make it easy to assign issues to team members and maintain communication history among all related parties.
A few popular options to choose from include:
Help Scout. Less cluttered than other desks, Help Scout treats each issue as an email and removes all the traditionally appended ticket information that customers see with support requests. Instead, support tickets appear like standard emails to customers, creating a more personalized experience. Plans start at $15/month.
Zendesk. Highly customizable and powerful, Zendesk offers a variety of tools and integrations and is one of the most popular help desks available. It takes some customization but is very powerful once it's tailored to your company. While the app is free to use, it does require a subscription to the Zendesk Support Team Plan, starting at $19/month.
Gorgias. Built specifically for your Shopify store, Gorgias manages all of your support queries in one place, helping you reduce response time and increase the efficiency of your customer support. Gorgias has automation tools to personalize responses to your most frequent questions. Plans start at $60/month.
HelpCenter. Access all customer inquiries from email, Live Chat, and FB Messenger in a single platform and save time. It's easy to create an FAQ page from scratch to help customers self-serve and find answers to their issues. A free plan is available.
Richpanel. See order data next to each ticket. Send tracking info, edit orders, and issue refunds without leaving the help desk. Create self-service scenarios in the help center and instantly answer common repeat questions. A free plan is available.
9. Consider phone support
If you're bootstrapping a business while working your 9 to 5, you likely won't be able to implement phone support for your dropship business. But if you're working full-time on your ecommerce business, it might be a feasible option.
When considering phone support for your online store, consider the type of dropshipping products you'll be selling. If you're a diamond boutique selling jewelry in the $1,000-5,000 range, many customers won't be comfortable placing an order that large without talking to a real person.
However, if you're selling products in the $25-50 range, most people won’t need phone support, assuming you've built a professional, information-rich website.
If you do decide to offer phone support, be strategic about it. Slapping a large 800 number on the top of every page can lead to a surfeit of low-value phone calls that cost more to support than they're worth. Instead, consider adding your number in targeted locations like the contact and shopping cart pages, where you know the visitor has a high probability of purchasing.
Fortunately, there are plenty of third-party services that can help you set up a toll-free phone number and sales line, including:
Grasshopper. Grasshopper offers phone services and is geared toward smaller businesses and entrepreneurs. You can get a toll-free number, three extensions, call forwarding, and voicemail for a reasonable monthly fee (around $26).
Aircall. Aircall offers an essential plan that gives you phone, email, and help center, effectively making it basic help desk software. It allows you to have a toll free number and unlimited calling in the US and Canada (international rates apply). It also integrates with other popular help desk software, like Zendesk.
10. Focus on marketing
Making sales ultimately depends on customers finding your dropshipping store online. Here are some dropshipping tips to help you increase website traffic as a new dropshipper.
Start with SEO
SEO is the process of fine-tuning your website to increase its chances of ranking highly in search results for relevant keywords.
Ideally, you want your product pages to rank for keywords so people can naturally discover them through search engines. While most keyword searches are short-tail queries, two to three words in length, they are more competitive and crowded, making them hard to rank for.
Instead, try focusing on long-tail keywords, which are three or more words in length. While long-tail keywords are lower in search volume, they are much easier to rank for because of lack of competition.
You can discover these using tools like Google Ads or keyword.io. Plug the name of your product into the tool and you'll see a list of related queries you can incorporate into your product descriptions.
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Use Facebook Ads to leverage social media
Facebook is a social media platform used by many online store owners. It's full with opportunities for you to reach new customers and drive them to your online store, as it has over 2.6 billion monthly active users. Creating Facebooks ads allows you to directly access an active and engaged social media user base.
All the likes and connections made on Facebook create detailed user profiles that advertisers can tap into through targeted ads. The perk of advertising on Facebook is you can focus in on social media customers based on these demographics, interests, and behaviors.
With Facebook’s Ads Manager platform, you can match the products in your dropship store against a long list of social media users' interests, traits, and behaviors, resulting in a higher likelihood of reaching the ideal customer in your target market.
From there, you can bid to put your product in front of a user. Try out different ad types for your Facebook offers (image, video, carousel, or collection), and see which paid campaigns convert best at the lowest price.
Target customers with Google Ads
Google Ads lets you advertise directly to your ideal customer on the two largest search engines: Google and YouTube. Google Ads has features like most other ad platforms, which let you set both a budget and max daily spend, as well as pay-per-click ads, so you're only charged when someone visits your site. These features make it a great entry-level ads platform.
What makes Google Ads uniquely attractive is its ability to reach consumers in three distinct ways: search ads, Google Display Network, and YouTube ads. The real lure of Google Ads is you can target your audience based on specific behaviors, how they've interacted with your site or brand before (from visiting a certain page to abandoning their cart), demographics, interests, and other traits.
Combining some of these features, you could try using Google Display Network to “retarget” people who have recently viewed certain products in your online store. As they explore websites that use Google’s display ads network, these users will see the products they checked out previously, giving you more chances to convert them into customers.
Ready to start your dropshipping business?
While beginning a dropshipping business is one of the fastest ways to get a business up and running, remember it's not a fast track to passive income. A successful dropshipping business takes active work to grow so customers are happy and return. But if you implement the dropshipping tips above, and you'll be off to a strong start.
Further reading: What is Passive Income
Next chapter: How to Make Dropshipping a Success